Minority-Owned Businesses Grow

Jonathan was an early hire at TalkTo, a Matrix Partners portfolio company acquired by Path. Jonathan is currently Path's Director of Operations. You can find additional writings at www.jonathansteiman.com.

Feb. 25, 2005 -- The share of minority-owned businesses in the United States more than doubled in the last twenty-years, but not all groups have fared the same, reported the Small Business Administration.

Businesses owned by Asians, Hispanics, African Americans and Native Americans were more likely to expand and less likely to contract than non-minority-owned businesses between 1997 and 2001, the agency found. When compared to these other groups, African American-owned businesses lagged in two of the three categories--survival and expansion-- raising alarms about the health of Black entrepreneurship.

In terms of survival of their businesses, Asian owners fared the best, with nearly 99.5% of them performing at the rate of non-minority-owned businesses. African-American companies, on the other hand, had a 61% survival rate, which was more than 11% below the average for non-minority-owned businesses.

Over one-third of Hispanic-owned businesses expanded during the period, compared to 27.4% of non-minority-owned firms. Asian and Native American businesses outpaced non-minority-owned business as well, while only 25.7% of African American-owned firms expanded, a rate 1.7% below non-minority-owned businesses.

The findings are an "alarm" and a "call to arms" for the African American community, said Henry Edwards, Executive Director at Howard University's Institute for Entrepreneurship, Leadership and Innovation.

Edwards attributed some of the overall decline in African American entrepreneurship to diversity programs. "The heightened efforts by companies to diversify may have caused a brain-drain," as would-be entrepreneurs head off to firms previously off-limits, said Edwards, a former food retail executive.

Ying Lowrey, the SBA's senior economist who led the study, said potential reasons could be the lack of a strong political voice and poor access to capital. She also said that education is no longer the dominant barrier for African Americans, noting that 40% of Hispanics, as compared to 18% African Americans, have less than a high school education, yet Hispanic-owned businesses had a 7.5% better survival rate than African American-owned companies.

With the number of African immigrants exceeding 50,000 a year, as the New York Times reported on Monday, the dynamics of African American entrepreneurship could change, said Edwards. Typically, immigrants are highly entrepreneurial, as they have a difficult time finding jobs because of language barriers and educational requirements.

Frank Lopez, President of the United States Hispanic Chamber of Commerce Foundation, said, "It doesn't surprise me that the growth rate of Latino companies is the fastest because our growth rate overall is fastest." Since 1982, the proportion of Hispanics in the United States has doubled to nearly 14 percent.

According to Lopez, the booming Hispanic population has propelled Hispanic entrepreneurs. "It only makes business-sense to partner with and invest in Hispanic business owners," said Lopez. He cautioned, however, that Hispanic growth has not come at the expense of other minority groups, particularly African Americans, as is often charged when one minority group surpasses another in wealth and innovation.

"The pie is big enough that growth doesn't need to be at the expense of African Americans," Lopez said.